What comes to mind when you think of the word 'environment'? You probably think of surroundings, and the conditions and influences of the surroundings. Similarly, the business environment refers to an organization's surroundings - its external surroundings, as well as its internal surroundings

An organization's business environment influences its decisions on which activities to undertake and how to undertake them. To be successful, an organization must study its external influences and adjust its internal environment to match opportunities in the external environment

Figure 1.1 Political Influences on an Organization's Environment

The external environment of an organization can be sub-divided into the macro and micro-environments. The macro-environment consists of broad national and international forces such as political changes, economic cycles, technological innovations and socio cultural changes. These are important influences and can impact an organization significantly, but they are influences over which an organization has no control. Then, closer to the organization is the micro-environment; the influences from the industry or business sphere within which the organization operates, which include competitors, suppliers and customers. An organization may have a degree of influence over these industry factors, but its influence is limited

The area over which the organization does have control is its internal environment - its structure, management and leadership style, culture and so on. The challenge for an organization is to develop its internal environment so as to match the opportunities in the external environment

As the external environment is continually changing, it is essential for an organization to regularly scan the environment and assess its impact on the business. Shifting market conditions, advances in technology, political changes, globalization and increased environmental regulations are just a few of the factors that add to the complexity of understanding the external environment. Changes in the external environment provide new opportunities but also pose threats. We shall examine how to assess the macro and micro-environment in the context of your own organization. We then go on to see how an organization can develop its internal environment to match opportunities in the external environment. We shall also look at various methods for absorbing change; change imposed by the external environment

No study of the business environment would be complete without considering the global marketplace. We examine what globalization means, and the implications of greater inter-connectedness in the international business environment. We go on to compare and contrast responses from different organizations